By the Government's own rhetoric, this year's Budget needs to be measured in three key areas:

• Will it accelerate economic growth?
• Does it help households with the cost of living?
• Does it help unblock the infrastructure pipeline?

Growth - a tick

On the growth measure, the Budget's Investment Boost announcement, allowing a 20% deduction in the first year of the value of a very wide range of capital assets, is an undoubted win.

The measure is more generous than was anticipated and well-timed. With confidence weakly fluttering into positive territory, the initiative gives business owners a concrete, measurable reason to invest in new plant and equipment.

There is no cap on the value of those investments. The incentive applies from Budget day, last Thursday, and Treasury expects it will reduce the corporate tax take in the current fiscal year, ending June 30, by more than $200 million, rising to an average $1.7 billion in a full year.

The expectation seems to be that there will be an almost immediate rush of small capital equipment replacement following on from this announcement, lifting retail sales and cycling through the economy.

Longer term, it should also nudge NZ businesses to invest in technologies that will help overcome our tendency to work harder rather than smarter - something at the heart of our productivity problem.

Granted, the Budget's economic forecasts are actually lower than those produced in the half-year update last December, but the Government cannot be blamed for global trade turmoil.

The depreciation initiative and the pragmatic change to the way start-up company shareholders will be taxed are useful.

Cost of living - a cross

On the one hand, the Budget forecasts low inflation over the next four years. If converted to reality, that will be a welcome change from the post-Covid burst of rising prices that have put so much pressure on New Zealand households.

Low inflation and an expectation that interest rates will continue to fall mean that servicing mortgage debt should become easier.

However, the Budget itself does not create those conditions, beyond seeking to keep government spending somewhat under control.

Somewhat, because the forecast obegalx surplus in June 2029 is so small as to be within the margin of error and the measure itself is something of a fudge adopted by this and previous governments. The practical reality for many households is that if they want their employer to top up KiwiSaver to the new higher level, the savers themselves will also need to commit more of their regular earnings to their scheme.

That is good for long-term savings outcomes, but provides no relief for meeting day-to-day expenses. The immediate effect is to shift costs from the Government to the private sector.

Likewise, families accessing the Best Start tax rebate will find themselves means-tested from the first year and parents of 18 and 19-year-olds who are neither working nor studying will face the costs of supporting their legally adult children from 2027.

Infrastructure – a bare pass at best

The announcement that the thin capitalisation tax regime will be expanded to accept a wider range of highly leveraged financing vehicles is useful.

Public-private partnerships are already treated this way, so an extension is pragmatic. Foreign investment can be structured in a number of ways, and flexibility is welcome. Beyond that, however, there is little in the Budget that unlocks infrastructure development. Announcements on school, hospital and rail capital expenditure fall well short of the Government's rhetorical commitment to getting spades in the ground more quickly. The need for this is urgent. Capacity is already being lost for want -of a pipeline.

So far, positive policy changes to accelerate infrastructure have been largely offset by the cancellation of projects that had been committed under the previous administration.

This is clearly also frustrating the Government, but it is largely a problem of its own making.

Making the best of it

In a sense, the Budget can be said to show the Government doing the best it can with what it had to work with.

However, it is also true that the Government has chosen what it had to work with.

Its intent is clear, and the focus and rhetoric directed at improving economic growth rates through enhanced productivity can't be faulted.

The difficulty is in the execution, While business will have a spring in their step over a more generous tax setting for capital investment, the Government has loaded a great deal of its ambitions for a "growth Budget" on this one measure. Hopefully it is more than a sugar hit.

For an international investor looking in, what do they see?

On one hand, New Zealand has some comparative attractions: improved tax settings, openness to foreign capital, and easier deductibility on new assets. It remains a stable democracy, Government debt is manageable and fiscal policy appears restrained.

This cannot be said of a lot of other countries.

However, those debt levels are elevated compared to the Government's own targets, the fiscal restraint will need to be greater if Budget surpluses are to return, and the ease of getting big projects done has not materially improved.

The 2025 Budget was always going to be difficult to write, let alone produce glowing reviews, In the final analysis, that explains why it rates a bare pass, with more work to be done.

This article was posted on the NZ Herald on Monday 26 May 2025 and is republished with permission.